Trust Assurance and Practice Review

In addition to the information provided below, the Real Estate Council of Alberta has produced additional resources for industry members and accountants about the Trust Assurance and Practice Review process:

A trust assurance and practice review (formerly compliance audit) is a review and examination of system records and activities to ensure compliance with statutory obligations under the Real Estate Act and to recommend any needed changes in control, policy, and procedures.

Objectives of Trust Assurance and Practice Reviews

The Real Estate Council of Alberta’s Trust Assurance and Practice Review program has four main objectives:

to be of service to industry members. Trust Assurance and Practice Review Officers will work constructively with brokers in developing sound accounting practices and procedures that comply with the Real Estate Act and the Rules.

to reduce the number of claims against the Assurance Fund. The cost of claims made against the Assurance Fund is shared by all industry members. Identifying problems before they develop reduces the number of claims against the fund, which benefits everyone.

To promote compliance with the Real Estate Act and the Rules. A small percentage of real estate practitioners may work outside the laws and standards that govern the industry – this can adversely affect the public’s view of our industry as a whole. RECA’s audits reduce the occurrence of activities in violation of the Real Estate Act or the Rules.

To safeguard the integrity of the licensing system. Trust Assurance and Practice Review Officers check to make sure industry members are following policies associated with the use of RECA's online licensing system.

Who Undergoes a Trust Assurance and Practice Review

Brokerages may be selected according to any of the following criteria:

brokers in their first year of operation

period of time since last audit

deficiencies in annual accountant’s report

previous audit findings

amount of trust monies held

size of the brokerage

information received form a third party (e.g. a solicitor who received an NSF trust cheque)

fiscal year end

location

Courtesy Trust Assurance and Practice Reviews

As a new broker, you can ask RECA to conduct a courtesy trust assurance and practice review. A courtesy trust assurance and practice review is an educational resource to help ensure new brokers are aware of the provisions of the Real Estate Act as it applies to brokerage accounting. A Trust Assurance and Practice Review Officer will review your books and records and, if necessary, assist you in making changes to ensure compliance with the Act. Contact RECA’s Trust Assurance and Practice Review Unit to schedule your courtesy trust assurance and practice review for the next time an Trust Assurance and Practice Review Officer is in your region.

Scheduling the Trust Assurance and Practice Review

Although trust assurance and practice reviews are sometimes unannounced, RECA will normally contact the broker in advance and will be flexible in scheduling. Reasonable efforts will be made to allow brokers to continue with normal business activities while the trust assurance and practice review is being completed.

Most trust assurance and practice reviews are completed in one day; however, this may vary depending upon the complexity of the brokerage’s operations and the quality of record keeping. Property management trust assurance and practice reviews often take longer than one day when there are a large number of accounts to review.

Whenever possible, RECA’s trust assurance and practice reviews will not be performed during the year-end report process. In remote locations, there may be less flexibility in scheduling.

Preparing for the Trust Assurance and Practice Review

If requested, the Trust Assurance and Practice Review Officer will provide a list of documents that will be required. If records are kept at the brokerage’s offices, little or no preparation should be required.

Who Should Be Present

It is not necessary for the broker to be present, but the person who maintains the accounting records must be available in case questions arise during the course of the trust assurance and practice review. Brokers will learn most from the process if they are present and involved. RECA’s review of records is for the benefit of the brokerage.

What Will Be Reviewed

Before the trust assurance and practice review begins, the Trust Assurance and Practice Review Officer will have a brief discussion with the broker about the brokerage’s activities, policies, and procedures.

The Trust Assurance and Practice Review Officer may then review any or all of the following:

other bank accounts (to ensure that trust transactions have not been made through them

a sample of both open transaction files

a sample of closed transaction files

the Trust Assurance and Practice Review Officer may also reconcile the trust account at the date of the audit to ensure it is fully funded

The trust assurance and practice review is limited by the statutory requirement to keep records for a minimum of three years. The review will usually cover the period from the last accountant’s report (for a new brokerage, from the start of business) to the present date.

In property management trust assurance and practice reviews, in addition to the above a sample of properties will be selected for detailed testing, including a review of management agreements, leases, and invoices paid on behalf of the properties.

In mortgage broker trust assurance and practice reviews, in addition to the above – where applicable – a sample of mortgages administered will be selected for detailed testing, including a review of the administration agreements and investor and borrower files. Where investors’ funds are received, the Trust Assurance and Practice Review Auditor may review investor, borrower, and loan files, including cost of credit disclosure schedules and lender/investment disclosure statements.

Brokerages Without Trust Funds

All brokerages must maintain adequate books and records and comply with all areas of the legislation, whether trust funds are held or not. For example, the Trust Assurance and Practice Review may review:

and – for property management – to ensure owners’ accounts are controlled by the owner or exempt under the legislation

Trust Assurance and Practice Reviews of Appraisers

All appraisers must maintain adequate books and records including any applicable licensing documentation and comply with all areas of legislation.

The Trust Assurance and Practice Review Officer may review any applicable licensing documentation and a sample of appraisal assignments for detailed testing including a review of:

the service agreement

work files and notes

the signed appraisal report

the details of the remuneration received

data supporting adjustment entries

Trust Assurance and Practice Review Outcomes

Review of trust assurance and practice review results. The Trust Assurance and Practice Review Officer will review results with the broker and any administrative staff the broker feels should be present, in a constructive question-and-answer style session.

Recommendations. The Trust Assurance and Practice Review Officer will provide alternatives and possible strategies to prevent future problems and may interpret relevant sections of the Real Estate Act and the Rules.

Written summary. The broker will be sent a written summary of the findings.

Ongoing support. The Trust Assurance and Practice Review Officer will be available should the broker require support after the review is complete.

Professional Conduct Review. Occasionally, serious concerns must be referred to RECA’s Professional Conduct Review unit. If there is a finding of misconduct, the case summary may be published.

The intent of the Trust Assurance and Practice Review process is to resolve concerns in a constructive way. Minor breaches of the Real Estate Act or the Rules are found in nearly all reviews, but seldom are penalties or sanctions assessed. Only in serious cases are referrals made to RECA’s Professional Conduct Review unit.

Referral for Professional Conduct Review

The following criteria are used in identifying files to be forwarded to the professional conduct review unit:

Do trust assurance and practice review findings indicate intent or recklessness on the part of the broker?

Have similar concerns been brought to the broker’s attention in the past?

Could there be serious consequences to the public (e.g. a trust shortgage) as a result of the concerns?

Trust Assurance and Practice Review Officer Responsibilities

RECA recognizes that undergoing a trust assurance and practice review can be a stressful experience and has adopted the following policies to make the process as positive as possible. RECA Trust Assurance and Practice Review Officers will:

conduct themselves in a courteous, professional and approachable manner

explain results in a constructive way

keep results confidential (unless there is a finding of misconduct)

RECA surveys brokers after the completion of each trust assurance and practice review and the results indicate the trust assurance and practice review program has been meeting these objectives with respect to real estate and mortgage professionals.